01/12/2009[Company watch]AstraZeneca to Move Production of Raw Materials for Drugs to China

AstraZeneca plans to move all production of the vital molecules in its medicines offshore, mainly to China. The pharmaceuticals company‚Äôs cost-cutting drive, which will continue for some years, means that it will cease to produce or source active pharmaceutical ingredients (API) in the UK.

AstraZeneca plans to move all production of the vital molecules in its medicines offshore, mainly to China. The pharmaceuticals company’s cost-cutting drive, which will continue for some years, means that it will cease to produce or source active pharmaceutical ingredients (API) in the UK.

The manufacturing shift to Asia could lead to job losses and either plant closures or a sale to another company, but an Astra spokesman said no decisions had yet been made. “Over the next several years we would seek to outsource all of our active ingredients,” he said. In the UK, Astra makes APIs for cholesterol and schizophrenia drugs in a factory at Avlon, near Bristol, which employs 300 people. An option for that facility could be a sale to a third party but no decision has been taken, the Astra spokesman said.

Astra has ended the production of active ingredients at its main UK factory in Macclesfield and has been building up its manufacturing presence in China with a big factory in Wuxi, which in addition to making APIs, also does medicine formulation and packaging.

The decision by Astra to shift offshore the entire process of making active ingredients will ring alarm bells in Britain’s chemical sector, which has suffered huge losses in the recent downturn.

According to figures compiled by the Chemical Industries Association, Britain’s trade in pharmaecutical ingredients moved into positive balance over the past year after a decade of deficits. Anecdotal evidence suggested some UK-based chemical companies were getting contracts from drug companies that had experienced quality-control problems in India and China.

The outsourcing of the active molecule in a medicine is an important trend among drug companies and is increasing, said James Knight, chemicals analyst at Collins Stewart, the broker. “There is a move to outsource more and more of the basic ingredients from Asia,” he said.

The threat to makers of pharmaceutical ingredients comes at a time when the UK chemical industry is reeling from a sudden fall in demand from manufacturers. A big chemical site, originally developed by ICI in the northeast of England, has come under threat after a decision by Dow Chemical, the American company, to cease production at its ethylene oxide plant. The integrated nature of the site means that the decision has put neighbouring plants, both suppliers and buyers, under pressure.

Robert Tyler, president of the Chemical Industries Association, said the pressure could become too great for some companies. “If the final decision on ethylene oxide is negative, then there will be more job losses. We have put a plaster on it for a year. A lot of companies will say we are returning to demand levels in 2005 and they will restructure.”

AstraZeneca last month reported that pre-tax profits for the third quarter rose 27 per cent to $3.4 billion (£2 billion), as revenue rose by 5 per cent to $8.2 billion.